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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 241 added, 237 removed, 155 unchanged (76% of the section changed)

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Notes to Financial Statements

All financial statement schedules are omitted as they are inapplicable or the required information has been included in

the consolidated financial statements or notes thereto.

All financial statement schedules are omitted as they are inapplicable or the required information has been

included in the consolidated financial statements or notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

We have audited the

accompanying statements of assets, liabilities and trust corpus ofPermian Basin Royalty Trust (the Trust) as of December 31, 2022 and 2021, and the related statements of distributable income and changes in trust corpus for each of the three

years in the period ended December 31, 2022, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities,

and trust corpus of the Trust as of December 31, 2022 and 2021, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2022, in conformity with the modified cash basis of

have audited the accompanying statements of assets, liabilities and trust corpus of Permian Basin Royalty Trust (the Trust) as of December 31, 2023 and 2022, and the related statements of distributable income and changes in trust corpus for each of

the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the assets,

liabilities, and trust corpus of the Trust as of December 31, 2023 and 2022, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2023, in conformity with the modified cash basis of

accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Trusts internal control over financial reporting as of December 31, 2022, based on criteria

established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 1, 2023 expressed an unqualified opinion thereon.

As described in Note 2 to the financial statements, these financial statements were prepared on a modified cash basis of accounting, which is a

comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),

the Trusts internal control over financial reporting as of December 31, 2023, based on criteria established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and

our report dated February 29, 2024 expressed an unqualified opinion thereon.

As described in Note 2 to the financial statements,

these financial statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Trustee.

Our responsibility is to express an opinion on these financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S.

federal securities laws and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the

amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall presentation of the financial statements.

believe that our audits provide a reasonable basis for our opinion.

These financial

statements are the responsibility of the Trustee.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the

accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be

communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are

no critical audit matters.

/s/ WEAVER AND TIDWELL, L.L.P.

served as the Trusts auditor since 2016.

Critical audit

matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

WEAVER AND TIDWELL, L.L.P.

We have served as the

Trusts auditor since 2016.

Dallas, Texas

March 1, 2023

February 29, 2024

PERMIAN BASIN ROYALTY TRUST

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Cash and Short-term Investments

Net Overriding Royalty Interests in Producing Oil and Gas Properties Net (Notes 2 and 3)

Net Overriding Royalty Interests in Producing Oil and Gas Properties Net

(Notes 2 and 3)

LIABILITIES AND TRUST CORPUS

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Distributions per Unit

The accompanying notes to financial statements are an integral part of these statements.

The accompanying notes to financial

statements are an integral part of these statements.

STATEMENTS OF CHANGES IN TRUST CORPUS

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The Permian Basin Royalty Trust (Trust) was established as of November 1, 1980.

Simmons Bank (Trustee) is Trustee for the

The net overriding royalties conveyed to the Trust include (1) a 75% net overriding royalty in Southland Royalty Companys fee mineral interest in the Waddell Ranch in Crane County, Texas (the Waddell Ranch properties)

and (2) a 95% net overriding royalty carved out of Southland Royalty Companys major producing royalty properties in Texas (the Texas Royalty properties).

The net overriding royalty for the Texas Royalty properties is subject

to the provisions of the lease agreements under which such royalties were created.

Argent Trust Company (Trustee) is

Trustee for the Trust.

properties) and (2) a 95% net overriding royalty carved out of Southland Royalty Companys major producing royalty properties in Texas (the Texas Royalty properties).

The net overriding royalty for the Texas Royalty

properties is subject to the provisions of the lease agreements under which such royalties were created.

The net overriding royalties above are collectively referred to as the Royalties.

On November 3, 1980, Units of Beneficial Interest (Units) in the Trust were distributed to the Trustee for the benefit of Southland

Royalty Companys shareholders of record as of November 3, 1980, who received one Unit in the Trust for each share of Southland Royalty Company common stock held.

On November 3, 1980, Units of Beneficial Interest (Units) in the Trust were distributed to the Trustee for the benefit of

Southland Royalty Companys shareholders of record as of November 3, 1980, who received one Unit in the Trust for each share of Southland Royalty Company common stock held.

The Units are traded on the New York Stock Exchange.

Burlington Resources Oil & Gas Company LP (BROG), a subsidiary of ConocoPhillips, was the interest owner for the Waddell Ranch

properties through November 1, 2019 and Riverhill Energy Corporation (Riverhill Energy), formerly a wholly owned subsidiary of Riverhill Capital Corporation (Riverhill Capital) and formerly an affiliate of Coastal

Burlington Resources Oil & Gas Company LP (BROG), a subsidiary of ConocoPhillips, was the interest owner for the Waddell

Ranch properties through November 1, 2019 and Riverhill Energy Corporation (Riverhill Energy), formerly a wholly owned subsidiary of Riverhill Capital Corporation (Riverhill Capital) and formerly an affiliate of Coastal

Management Corporation (CMC), is the interest owner for the Texas Royalty properties.

BROG currently conducts all field, technical and accounting operations on behalf of BROG with regard to the Waddell Ranch properties.

Riverhill Energy

currently conducts the accounting operations for the Texas Royalty properties.

In February 1997, BROG sold its interest in the Texas Royalty

properties to Riverhill Energy.

The Trustee was advised that in the first quarter of 1998, Schlumberger Technology Corporation (STC)

acquired all of the shares of stock of Riverhill Capital.

In February 1997, BROG sold its interest in the Texas Royalty properties to Riverhill Energy.

Riverhill Energy currently conducts the accounting

operations for the Texas Royalty properties.

The Trustee was advised that in the first quarter of 1998, Schlumberger Technology

Corporation (STC) acquired all of the shares of stock of Riverhill Capital.

Prior to such acquisition by STC, CMC and Riverhill Energy were wholly owned subsidiaries of Riverhill Capital.

The Trustee was further advised that in connection with STCs acquisition

of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all of the shares of stock of Riverhill Energy.

Thus, the ownership in the Texas Royalty properties referenced above remained in Riverhill Energy, the stock ownership

of which was acquired by the former shareholders of Riverhill Capital.

BROG notified the Trust, that on November 1, 2019, the Waddell Ranch

properties (as defined herein on page 10) that are subject to the Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) dated November 1, 1980 (the Waddell Ranch

Conveyance), were sold to Blackbeard Operating, LLC (Blackbeard) of Fort Worth, Texas.

The Trustee was further advised that in

connection with STCs acquisition of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all of the shares of stock of Riverhill Energy.

Thus, the ownership in the Texas Royalty properties referenced above remained in

Riverhill Energy, the stock ownership of which was acquired by the former shareholders of Riverhill Capital.

BROG notified the Trust,

that on November 1, 2019, the Waddell Ranch properties that are subject to the Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) dated November 1, 1980 (the

Waddell Ranch Conveyance), were sold to Blackbeard Operating, LLC (Blackbeard) of Fort Worth, Texas.

Blackbeard became the operator effective as of April 1, 2020.

On January 9, 2014, Bank of America N.A.

(as successor to The First National Bank of Fort Worth) gave notice to Unit holders that it would be

resigning as trustee of the Trust subject to certain conditions that included the appointment of Southwest Bank as successor trustee.

(as successor to The First National Bank of Fort Worth) gave notice to Unit holders that it

would be resigning as trustee of the Trust subject to certain conditions that included the appointment of Southwest Bank as successor trustee.

At a Special Meeting of Trust Unit holders, the Unit holders approved the appointment of Southwest Bank as

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SFNC merged Southwest Bank with Simmons Bank effective February 20, 2018.

On November 4,

2021, Simmons Bank announced that it had entered into an agreement with Argent Trust Company, a Tennessee chartered trust company (Argent), pursuant to which Simmons Bank would be resigning as trustee of the Trust and would nominate

Argent as successor trustee of the Trust.

November 4, 2021, Simmons Bank announced that it had entered into an agreement with Argent Trust Company, a Tennessee chartered trust company (Argent), pursuant to which Simmons Bank would be resigning as trustee of the Trust and

would nominate Argent as successor trustee of the Trust.

The effective date of Simmons Banks resignation and Argents appointment as successor trustee was December 30, 2022.

The defined term Trustee as used herein shall refer to Bank of

for periods prior to August 29, 2014, shall refer to Southwest Bank for periods from August 29, 2014 through

February 19, 2018, shall refer to Simmons Bank for periods from February 20, 2018 through December 29, 2022, and shall refer to Argent for periods on and after December 30,

The defined term Trustee as used herein shall

refer to Bank of America N.A.

for periods prior to August 29, 2014, shall refer to Southwest Bank for periods from August 29, 2014 through February 19, 2018, shall refer to Simmons Bank for periods from February 20, 2018 through

December 29, 2022, and shall refer to Argent for periods on and after December 30, 2022.

The terms of the Trust Indenture provide, among other things, that:

the Trust shall not engage in any business or commercial activity of any kind or acquire any assets other than those

initially conveyed to the Trust;

the Trustee may not sell all or any part of the Royalties unless approved by holders of 75% of all Units outstanding in

which case the sale must be for cash and the proceeds promptly distributed;

the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in amount;

the Trust shall not engage in any business or commercial activity of any kind or acquire any assets other than

those initially conveyed to the Trust;

the Trustee may not sell all or any part of the Royalties unless approved by holders of 75% of all Units

outstanding in which case the sale must be for cash and the proceeds promptly distributed;

the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in

the Trustee is authorized to borrow funds to pay liabilities of the Trust;

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The financial statements of the Trust are prepared on the following basis:

Royalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the interest

Royalty income consists of the amounts received by the owners of the interest burdened by the Royalties from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges and other

costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties.

Trust expenses, consisting principally of routine general and administrative costs, recorded are based on liabilities paid

and cash reserves established out of cash received or borrowed funds for liabilities and contingencies.

Royalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the

interest owners.

and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties.

Trust expenses, consisting principally of routine general and administrative costs, recorded are based on

liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies.

Distributions to Unit holders are recorded when declared by the Trustee.

Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust.

monthly costs exceed revenues for any conveyance (excess costs), such excess costs cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that

The financial statements of the Trust differ from financial statements prepared in accordance with accounting

principles generally accepted in the United States of America (GAAP) because revenues are not accrued in the month of production expenses are recorded when paid and certain cash reserves may be established for contingencies which would

not be accrued in financial statements prepared in accordance with GAAP.

Amortization of the Royalties calculated on a unit-of-production basis is charged directly to

trust corpus.

Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the

If monthly costs exceed revenues for any conveyance (excess costs), such excess costs cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of

that conveyance.

The financial statements of the Trust differ from financial statements prepared in accordance with

accounting principles generally accepted in the United States of America (GAAP) because revenues are not accrued in the month of production expenses are recorded when paid and certain cash reserves may be established for contingencies

which would not be accrued in financial statements prepared in accordance with GAAP.

Amortization of the Royalties calculated on a unit-of-production basis is charged

directly to trust corpus.

This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S.

Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements

of Royalty Trusts.

Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12:E,

Financial Statements of Royalty Trusts.

Use of Estimates

The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and assumptions

that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods.

The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and

assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods.

Actual results may differ from such estimates.

routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that the

carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized

as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows.

was no impairment of the assets as of December 31, 2022.

Trustee routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that

the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would

likely be measured by discounting projected cash flows.

There was no impairment of the assets as of December 31, 2023.

Contingencies

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future

royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Distributable Income Per

Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units outstanding.

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to

future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Distributable

Income Per Unit

Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units

Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding.

The Trust had no equivalent Units outstanding for any period presented.

basic distributable income per Unit and distributable income per Unit assuming dilution are the same.

New Accounting Pronouncements

There are no new pronouncements that are expected to have a significant impact on the Trusts financial statements.

The Trust had no equivalent Units outstanding for any period

Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.

Accounting Pronouncements

There are no new pronouncements that are expected to have a significant impact on the Trusts

financial statements.

Prices obtained for oil and gas production depend upon numerous factors that are beyond the control of the Trust.

Inflationary pressures have

accelerated during 2023, which has impacted the cost of goods and services for operators on the Underlying Properties and administrative costs for the Trust.

Net Overriding Royalty Interests and Distribution to Unit Holders

The amounts to be distributed to Unit holders (Monthly Distribution Amounts) are determined on a monthly basis.

The Monthly Distribution

Amount is an amount equal to the sum of cash received by the Trustee during a calendar month attributable to the Royalties, any reduction in cash reserves and any other cash receipts of the Trust, including interest, reduced by the sum of

liabilities paid and any increase in cash reserves.

Distribution Amount is an amount equal to the sum of cash received by the Trustee during a calendar month attributable to the Royalties, any reduction in cash reserves and any other cash receipts of the Trust, including interest, reduced by the sum

of liabilities paid and any increase in cash reserves.

If the Monthly Distribution Amount for any monthly period is a negative number, then the distribution will be zero for such month.

To the extent the distribution amount is a negative number, that

amount will be carried forward and deducted from future monthly distributions until the cumulative distribution calculation becomes a positive number, at which time a distribution will be made.

Unit holders of record will be entitled to receive the

calculated Monthly Distribution Amount for each month on or before 10 business days after the monthly record date, which is generally the last business day of each calendar month.

The cash received by the Trustee consists of the amounts received by owners of the interest burdened by the Royalties from the sale of production less

the sum of applicable taxes, accrued production costs, development and drilling costs, operating charges and other costs and deductions, multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty

The initial carrying value of the Royalties ($10,975,216) represented Southland Royalty Companys historical net book value at the

date of the transfer to the Trust.

To the extent the distribution amount is a negative number,

that amount will be carried forward and deducted from future monthly distributions until the cumulative distribution calculation becomes a positive number, at which time a distribution will be made.

Unit holders of record will be entitled to receive

the calculated Monthly Distribution Amount for each month on or before 10 business days after the monthly record date, which is generally the last business day of each calendar month.

The cash received by the Trustee consists of the amounts received by owners of the interest burdened by the Royalties from the sale of

production less the sum of applicable taxes, accrued production costs, development and drilling costs, operating charges and other costs and deductions, multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas

Royalty properties.

The initial carrying value of the Royalties ($10,975,216) represented Southland Royalty Companys historical net

book value at the date of the transfer to the Trust.

Accumulated amortization as of December 31, 2023 and 2022 was $10,753,742 and $10,695,783, respectively.

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For federal income tax purposes, the Trust constitutes a fixed investment trust that is taxed as a grantor trust.

A grantor trust is not subject to tax

at the trust level.

A grantor trust is not

subject to tax at the Trust level.

The Unit holders are considered to own the Trusts income and principal as though no trust were in existence.

The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is

received or accrued by the Trust and not when distributed by the Trust.

The income of the Trust is deemed to have been received or accrued by each Unit holder at the time

such income is received or accrued by the Trust and not when distributed by the Trust.

The Trust has on file technical advice memoranda confirming the tax treatment described above.

Some Trust Units are held by middlemen, as such term is broadly defined in U.S.

Treasury Regulations (and includes custodians, nominees, certain joint

owners, and brokers holding an interest for a customer in street name, collectively

referred to herein as middlemen).

Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust

(WHFIT) for U.S.

Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a customer in street name, collectively referred to herein as middlemen).

Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust (WHFIT) for U.S.

federal income tax purposes.

Argent Trust Company, EIN:

62-1437218, 2911 Turtle Creek Boulevard, Suite 850, Dallas, Texas 75219, telephone number (855) 588-7839, email address trustee@pbt-permian.com, is the representative of the Trust that will provide tax information in accordance with applicable U.S.

Treasury Regulations

governing the information reporting requirements of the Trust as a WHFIT.

62-1437218, 3838 Oak Lawn Ave, Suite 1720,

Dallas, Texas 75219, telephone number (855) 588-7839, email address trustee@pbt-permian.com, is the representative of the Trust that will provide tax information in

accordance with applicable U.S.

Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT.

Tax information is also posted by the Trustee at www.pbt-permian.com .

Notwithstanding the foregoing, the middlemen holding Trust Units

on behalf of Unit holders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the U.S.

Treasury Regulations with respect to such Trust Units, including the issuance of IRS Forms

1099 and certain written tax statements.

Unit holders whose Trust Units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the Trust Units.

Because the Trust is a grantor trust for federal tax purposes, each Unit holder is taxed directly on his proportionate share of income, deductions and

credits of the Trust consistent with each such Unit holders taxable year and method of accounting and without regard to the taxable year or method of accounting employed by the Trust.

The income of the Trust consists primarily of a specified

share of the proceeds from the sale of oil and gas produced from the Underlying Properties.

During 2022, the Trust also earned interest income on funds held for distribution and the cash reserve maintained for the payment of contingent and future

obligations of the Trust.

The Trust generally allocates its items of income, gain, loss and deduction between transferors and transferees of the

Units each month based upon the ownership of the Units on the monthly record date, instead of on the basis of the date a particular Unit is transferred.

It is possible that the IRS could disagree with this allocation method and could assert that

income and deductions of the Trust should be determined and allocated on a daily or prorated basis, which could require adjustments to the tax returns of the Unit holders affected by the issue and result in an increase in the administrative expense

of the Trust in subsequent periods.

Notwithstanding the foregoing, the middlemen holding Trust Units on behalf of Unit holders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the U.S.

Treasury Regulations with

respect to such Trust Units, including the issuance of IRS Forms 1099 and certain written tax statements.

Unit holders whose Trust Units are held by middlemen should consult with such middlemen regarding the information that will be reported to them

by the middlemen with respect to the Trust Units.

Because the Trust is a grantor trust for federal tax purposes, each Unit holder is

taxed directly on his, her or its proportionate share of income, deductions and credits of the Trust consistent with each such Unit holders taxable year and method of accounting and without regard to the taxable year or method of accounting

employed by the Trust.

The income of the Trust consists primarily of a specified share of the proceeds from the sale of oil and gas produced from the Underlying Properties.

During 2023, the Trust also earned interest income on funds held for

distribution and the cash reserve maintained for the payment of contingent and future obligations of the Trust.

The Trust generally

allocates its items of income, gain, loss and deduction between transferors and transferees of the Units each month based upon the ownership of the Units on the monthly record date, instead of on the basis of the date a particular Unit is

It is possible that the IRS could disagree with this allocation method and could assert that income and deductions of the Trust should be determined and allocated on a daily or prorated basis, which could require adjustments to the tax

returns of the Unit holders affected by the issue and result in an increase in the administrative expense of the Trust in subsequent periods.

The deductions of the Trust consist of severance taxes and administration expenses.

In addition, each Unit

holder is entitled to depletion deductions because the Royalties constitute economic interests in oil and gas properties for federal income tax purposes.

Each Unit holder is entitled to amortize the cost of the Units through cost

depletion over the life of the Royalties or, if greater, through percentage depletion equal to 15 percent of gross income attributable to the Royalties, limited to 100% of the net income from such Royalties.

Unlike cost depletion, percentage

depletion is not limited to a Unit holders depletable tax basis in the Units.

In addition, each Unit holder is entitled to depletion

deductions because the Royalties constitute economic interests in oil and gas properties for federal income tax purposes.

Each Unit holder is entitled to amortize the cost of the Units through cost depletion over the life of the

Royalties or, if greater, through percentage depletion equal to 15 percent of gross income attributable to the Royalties, limited to 100% of the net income from such Royalties.

Unlike cost depletion, percentage depletion is not limited to a

Unit holders depletable tax basis in the Units.

Rather, a Unit holder is entitled to a percentage depletion deduction as long as the applicable Underlying Properties generate gross income.

Percentage depletion is

allowed on proven properties acquired after October 11, 1990.

For Units acquired after such date, Unit holders should compute both percentage depletion and cost depletion from each property and claim the larger amount as a deduction on their

income tax returns.

Unit holders must maintain records of their adjusted basis in their Trust Units (generally the Unit holders cost less

prior depletion deductions), make adjustments for depletion deductions to such basis, and use the adjusted basis for the computation of gain or loss on the disposition of the Trust Units.

If a taxpayer disposes of any Section 1254 property (certain oil, gas, geothermal or other mineral property), and if the adjusted basis

of such property includes adjustments for deductions for depletion under Section 611 of the Internal Revenue Code (the Code), the taxpayer generally must recapture the amount deducted for depletion as ordinary income (to the extent

of gain realized on such disposition).

Percentage depletion is allowed on proven properties

acquired after October 11, 1990.

For Units acquired after such date, Unit holders should compute both percentage depletion and cost depletion from each property and claim the larger amount as a deduction on their income tax returns.

Unit holders must maintain records of their adjusted basis in their Trust Units (generally the Unit holders cost less prior depletion

deductions), make adjustments for depletion deductions to such basis, and use the adjusted basis for the computation of gain or loss on the disposition of the Trust Units.

If a taxpayer disposes of any Section 1254 property (certain oil, gas, geothermal or other mineral property), and if the

adjusted basis of such property includes adjustments for deductions for depletion under Section 611 of the Internal Revenue Code (the Code), the taxpayer generally must recapture the amount deducted for depletion as ordinary income

(to the extent of gain realized on such disposition).

This depletion recapture rule applies to any disposition of property that was placed in service by the taxpayer after December 31, 1986.

Detailed rules set forth in Sections

1.1254-1 through 1.1254-6 of the U.S.

Detailed rules set forth in Sections 1.1254-1 through 1.1254-6 of the U.S.

Treasury Regulations govern dispositions of property after March 13, 1995.

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position that a Unit holder who purchases a Unit subsequent to December 31, 1986 must recapture depletion upon the disposition of that Unit.

Individuals may incur expenses in connection with the acquisition or ownership of Trust Units.

For tax years beginning before January 1, 2018 and

after December 31, 2025, these expenses may be deductible as miscellaneous itemized deductions only to the extent that such expenses exceed 2 percent of the individuals adjusted gross income.

As a result of the TCJA, for

tax years beginning after December 31, 2017 and before January 1, 2026, miscellaneous itemized deductions are not allowed.

The classification of the Trusts income for purposes of the passive loss rules may be important

to a Unit holder.

Interest and royalty income attributable to ownership of Trust Units and any gain on the sale thereof are generally considered portfolio income and not income from a passive activity, to the extent a Unit holder

acquires and holds Trust Units as an investment and not in the ordinary course of a trade or business.

Therefore, in general, interest and royalty income attributable to ownership of Trust Units may not be offset by losses from any passive

Unit holders should consult their tax advisor for further information.

Unit holders of record will continue to receive an

individualized tax information letter for each of the quarters ending March 31, June 30 and September 30, 2022, and for the year ending December 31, 2022.

Unit holders owning Units in the name of a nominee may obtain monthly tax

information from the Trustee upon request.

See discussion above regarding certain reporting requirements imposed upon middlemen under U.S.

Treasury Regulations because the Trust is considered a WHIFT for federal income tax purposes.

Individuals may incur expenses in connection with the acquisition or ownership of Trust

For tax years beginning before January 1, 2018 and after December 31, 2025, these expenses may be deductible as miscellaneous itemized deductions only to the extent that such expenses exceed 2 percent of the

individuals adjusted gross income.

As a result of the TCJA, for tax years beginning after December 31, 2017 and before January 1, 2026, miscellaneous itemized deductions are not allowed.

The classification of the Trusts income for purposes of the passive loss rules may be important to a Unit holder.

Interest and royalty

income attributable to ownership of Trust Units and any gain on the sale thereof are generally considered portfolio income and not income from a passive activity, to the extent a Unit holder acquires and holds Trust Units as an

investment and not in the ordinary course of a trade or business.

Therefore, in general, interest and royalty income attributable to ownership of Trust Units may not be offset by losses from any passive activities.

Unit holders should consult their

tax advisor for further information.

Unit holders of record will continue to receive an individualized tax information letter for each of

the quarters ending March 31, June 30 and September 30, 2023, and for the year ending December 31, 2023.

Unit holders owning Units in the name of a nominee may obtain monthly tax information from the Trustee upon request.

discussion above regarding certain reporting requirements imposed upon middlemen under U.S.

Treasury Regulations because the Trust is considered a WHFIT for federal income tax purposes.

Under the TCJA, for tax years beginning after December 31, 2017 and before January 1, 2026, the highest marginal U.S.

federal income tax rate

applicable to ordinary income of individuals is 37%, and the highest marginal U.S.

federal income tax rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year)

and qualified dividends of individuals is 20%.

federal income

tax rate applicable to ordinary income of individuals is 37%, and the highest marginal U.S.

federal income tax rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one

year) and qualified dividends of individuals is 20%.

Under the TCJA, for such tax years, personal exemptions and miscellaneous itemized deductions are not allowed.

For such tax years, the U.S.

federal income tax rate applicable to corporations is 21%, and

such rate applies to both ordinary income and capital gains.

Section 1411 of the Code imposes a 3.8% Medicare tax on certain investment income

earned by individuals, estates, and trusts.

For these purposes, investment income generally will include a Unit holders allocable share of the Trusts interest and royalty income plus the gain recognized from a sale of Trust Units.

case of an individual, the tax is imposed on the lesser of (i) the individuals net investment income from all investments, or (ii) the amount by which the individuals modified adjusted gross income exceeds specified threshold

levels depending on such individuals federal income tax filing status.

In the case of an estate or trust, the tax is imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the

dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

Pursuant to the Foreign Account Tax Compliance Act

(commonly referred to as FATCA), distributions from the Trust to foreign financial institutions and certain other non-financial foreign entities may be subject to U.S.

federal income tax rate applicable to corporations is

21%, and such rate applies to both ordinary income and capital gains.

Section 1411 of the Code imposes a 3.8% Medicare tax on

certain investment income earned by individuals, estates, and trusts.

For these purposes, investment income generally will include a Unit holders allocable share of the Trusts interest and royalty income plus the gain recognized from a

sale of Trust Units.

In the case of an individual, the tax is imposed on the lesser of (i) the individuals net investment income from all investments, or (ii) the amount by which the individuals modified adjusted gross income

exceeds specified threshold levels depending on such individuals federal income tax filing status.

In the case of an estate or trust, the tax is imposed on the lesser of (i) undistributed net investment income, or (ii) the excess

adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

the Foreign Account Tax Compliance Act (commonly referred to as FATCA), distributions from the Trust to foreign financial institutions and certain other non-financial foreign

entities may be subject to U.S.

withholding taxes.

Specifically, certain withholdable payments (including certain royalties, interest and other gains or income from U.S.

sources) made to a foreign financial institution or

non-financial foreign entity will generally be subject to the withholding tax unless the foreign financial institution or non-financial foreign entity complies with

certain information reporting, withholding, identification, certification and related requirements imposed by FATCA.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing

FATCA may be subject to different rules.

sources) made to a foreign financial institution or non-financial foreign entity will generally be subject to the withholding tax unless the foreign financial institution or non-financial foreign entity complies with certain

information reporting, withholding, identification, certification and related requirements imposed by FATCA.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may

be subject to different rules.

The Treasury Department issued guidance providing that the FATCA withholding rules described above

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The foregoing summary is not exhaustive and does not purport to be complete.

Many other provisions of the federal income tax laws may affect individual

Unit holders.

The federal income tax consequences to a Unit holder of the acquisition, ownership or disposition of Units will depend in part on the Unit holders tax circumstances.

Unit holders should consult their tax advisor regarding all

Trust tax compliance matters.

Many other provisions of the federal income tax laws may affect

individual Unit holders.

The federal income tax consequences to a Unit holder of the acquisition, ownership or disposition of Units will depend in part on the Unit holders individual tax circumstances.

Unit holders should consult their tax

advisor regarding all Trust tax compliance matters.

Proved Oil and Gas Reserves (Unaudited)

Reserve Quantities

regarding estimates of the proved oil and gas reserves attributable to the Trust are based on reports prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineering consultants.

Estimates were prepared

in accordance with the guidelines established by the FASB and the Securities and Exchange Commission.

Certain information required by this guidance is not presented because that information is

not applicable to the Trust due to its passive nature.

Oil and gas reserve quantities (all located in the United States) are estimates based on

information available at the time of their preparation.

Information regarding estimates of the proved oil and gas reserves attributable to the Trust are based on reports prepared by Cawley,

Gillespie & Associates, Inc., independent petroleum engineering consultants.

Estimates were prepared in accordance with the guidelines established by the FASB and the Securities and Exchange Commission.

Certain information required by this

guidance is not presented because that information is not applicable to the Trust due to its passive nature.

Oil and gas reserve

quantities (all located in the United States) are estimates based on information available at the time of their preparation.

Such estimates are subject to change as additional information becomes available.

Reserves actually recovered, and the timing of the production of those reserves, may differ substantially from

original estimates.

Reserves actually recovered, and the

timing of the production of those reserves, may differ substantially from original estimates.

The following schedule presents changes in the Trusts total proved reserves (in thousands):

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December 31, 2023

Estimated quantities of proved developed reserves of oil and gas as of the dates indicated were as follows

(in thousands):

Estimated quantities of proved developed reserves of oil and gas as of the dates indicated were as follows (in

Proved Developed Reserves:

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Disclosure of a Standardized Measure of Discounted Future Net Cash Flows

The following is a summary of a standardized measure (in thousands) of discounted future net cash flows related to the total proved oil and gas reserve

quantities attributable to the Trust.

The following is a summary of a standardized measure (in thousands) of discounted future net cash flows related to the total proved oil and gas

reserve quantities attributable to the Trust.

Information presented is based upon valuation of proved reserves by using discounted cash flows based upon average oil and gas prices ($78.22 per bbl and $2.64 per Mcf, respectively) during the 12-month period prior to the fiscal year-end, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future

3 unchanged sentences

Trust prices may differ from posted NYMEX prices due to differences in product quality and property location.

The impact of changes in current prices on reserves could vary

significantly from year to year.

Accordingly, the information presented below should not be viewed as an estimate of the fair market value of the Trusts oil and gas properties nor should it

be viewed as indicative of any trends.

The impact of changes in current prices on reserves could vary significantly from year to year.

Accordingly, the

information presented below should not be viewed as

an estimate of the fair market value of the Trusts oil and gas properties nor should it be viewed as indicative of any trends.

Future net cash inflows

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Standardized measure of discounted future net cash inflows

The change in the standardized measure of discounted future net cash flows for the years ended December 31, 2022,

2021 and 2020 is as follows (in thousands):

The change in the standardized measure of discounted future net cash flows for the years ended

December 31, 2023, 2022 and 2021 is as follows (in thousands):

Extensions, discoveries, and other additions

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Royalty income

Subsequent to December 31, 2022, the price of both oil and gas continued to fluctuate, giving rise to a correlating

adjustment of the respective standardized measure of discounted future net cash flows.

As of February 24, 2023, NYMEX posted oil prices were approximately $76.45 per barrel, which compared to the posted price of $93.67 per barrel, used to

calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a smaller standardized measure of discounted future net cash flows for oil.

Subsequent to December 31, 2023, the price of both oil and gas continued to fluctuate, giving rise to a

correlating adjustment of the respective standardized measure of discounted future net cash flows.

As of February 20, 2024, NYMEX posted oil prices were approximately $78.72 per barrel, which compared to the posted price of $78.22 per barrel, used

to calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a larger standardized measure of discounted future net cash flows for oil.

As of February 21 , 2024, NYMEX posted gas prices were $1.58

per million British thermal units.

The use of such price, as compared to the posted price of $6.36 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves would result in a

smaller standardized measure of discounted future net cash flows for gas.

The use of such price, as compared to the posted price of $2.64 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves would result in a smaller

standardized measure of discounted future net cash flows for gas.

Quarterly Schedule of Distributable Income (Unaudited)

The following is a summary of the unaudited quarterly schedule of distributable income for the two years ended December 31, 2022 (in thousands,

except per Unit amounts):

The following is a summary of the unaudited quarterly schedule of distributable income for the two years ended December 31, 2023 (in

thousands, except per Unit amounts):

Distributable

12 unchanged sentences

All revenues from the Trust are from sources within Texas, which does not impose an individual income tax.

Texas imposes a franchise tax at a rate of

0.75% on gross revenues less certain deductions, as specifically set forth in the Texas franchise tax statutes.

Entities subject to tax generally include trusts and most other types of entities that provide limited liability protection, unless

otherwise exempt.

Trusts that receive at least 90% of their federal gross income from certain passive sources, including royalties from mineral properties and other non-operated mineral interest income, and do

not receive more than 10% of their income from operating an active trade or business, generally are exempt from the Texas franchise tax as passive entities. The Trust has been and expects to continue to be exempt from Texas franchise tax

as a passive entity.

Because the Trust should be exempt from Texas franchise tax at the Trust level as a passive entity, each Unit holder that is a taxable entity under the Texas franchise tax generally will be required to include its portion of

Trust revenues in its own Texas franchise tax computation.

This revenue is sourced to Texas under provisions of the Texas Administrative Code providing that such income is sourced according to the principal place of business of the Trust, which is

Texas imposes a franchise tax at a

rate of 0.75% on gross revenues less certain deductions, as specifically set forth in the Texas franchise tax statutes.

Entities subject to tax generally include trusts and most other types of entities that provide limited liability protection,

unless otherwise exempt.

Trusts that receive at least 90% of their federal gross income from certain passive sources, including royalties from mineral properties and other non-operated mineral interest income,

and do not receive more than 10% of their income from operating an active trade or business, generally are exempt from the Texas franchise tax as passive entities. The Trust has been and expects to continue to be exempt from Texas

franchise tax as a passive entity.

portion of Trust revenues in its own Texas franchise tax computation.

This revenue is sourced to Texas under provisions of the Texas Administrative Code providing that such income is sourced according to the principal place of business of the Trust,

which is Texas.

Unit holders should consult their tax advisor regarding the possible state tax implications of owning Trust Units.

Commitments and Contingencies

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future

royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to

future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Subsequent Events

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data